How to Help Manage Taxes on Required Minimum Distributions
For many retirees, required minimum distributions (RMDs) are a normal part of retirement. But while these withdrawals are required under federal tax rules, they can also affect a household’s broader tax picture in ways that are easy to miss.
In plain English, RMDs can increase taxable income at a stage of life when many retirees expect their taxes to go down. That extra income may also affect the taxation of Social Security benefits, Medicare premium surcharges, and, in some states, state income taxes. (irs.gov)
At BDB Wealth Advisors, we often find that RMD planning is most helpful when it’s viewed as part of a broader retirement income strategy—not just a once-a-year tax issue.
What Are Required Minimum Distributions?
An RMD is the minimum amount an individual generally must withdraw each year from certain tax-deferred retirement accounts after reaching the applicable starting age. These rules commonly apply to:
Traditional IRAs
SEP IRAs
SIMPLE IRAs
401(k) plans
403(b) plans
Other defined contribution retirement plans (irs.gov)
For many retirees today, RMDs generally begin at age 73. Under current law, the applicable age is scheduled to rise to 75 for certain individuals in future years. (irs.gov)
These rules exist because contributions to these accounts were often made on a pre-tax basis, and any growth generally compounded tax-deferred. When withdrawals occur, the taxable portion is generally treated as ordinary income. (irs.gov)
How Are RMDs Calculated?
In general, an RMD is based on:
The account balance as of December 31 of the prior year
A life expectancy factor published by the IRS (irs.gov)
For many account owners, the IRS Uniform Lifetime Table is used. As a retiree gets older, the withdrawal percentage generally increases. That means larger pre-tax account balances can lead to larger taxable distributions later in retirement. (irs.gov)
When Does the First RMD Need to Be Taken?
The first RMD is generally due by April 1 of the year after the year the individual reaches the applicable RMD age. After that, annual RMDs are generally due by December 31 each year. (irs.gov)
That said, delaying the first RMD can create a planning issue: it may result in two taxable distributions in the same calendar year—the delayed first RMD and the second year’s RMD. For some retirees, that can increase taxable income more than expected. (irs.gov)
Why RMDs Can Matter for Taxes
Once RMDs begin, the distributed amount is generally included in taxable income to the extent it has not already been taxed. Depending on the household’s overall income picture, that may affect:
Federal income taxes
Taxation of Social Security benefits
Medicare income-related monthly adjustment amounts, or IRMAA
State income taxes, where applicable (irs.gov)
This does not mean RMDs are inherently a problem. It simply means they are often worth planning around before they begin.
Where Planning Opportunities May Exist
For many retirees, the most flexible planning window is the period after retirement but before RMDs start. During those years, taxable income may temporarily be lower, which can create room to evaluate strategies such as:
Gradual withdrawals from pre-tax retirement accounts
Partial Roth conversions
Coordinating income with tax brackets
Reviewing which account types to draw from first
These strategies are not one-size-fits-all, and they may not make sense for everyone. But in some cases, they may help reduce future pre-tax balances and potentially moderate future RMDs. Any decision should be reviewed in light of tax brackets, spending needs, estate goals, and charitable intent. (irs.gov)
Can Charitable Giving Help?
For some retirees, yes.
A Qualified Charitable Distribution (QCD) allows an eligible IRA owner who is at least age 70½ to transfer funds directly from an IRA to a qualified charitable organization. When done properly, that amount can count toward satisfying the year’s RMD and generally is excluded from taxable income. For 2026, the annual QCD limit is $111,000. (irs.gov)
This can be especially appealing for retirees who are already charitably inclined and do not need all of their required distribution for living expenses.
One important detail: a QCD is generally made from an IRA, not directly from a 401(k). (irs.gov)
How Different Account Types Can Affect Retirement Taxes
Many retirees hold a mix of:
Tax-deferred accounts, such as traditional IRAs and 401(k)s
Roth accounts
Taxable brokerage accounts
Because these account types are taxed differently, the timing and order of withdrawals can influence how much taxable income shows up in a given year. That is one reason withdrawal strategy can be just as important as investment strategy in retirement.
What Role Do Roth Accounts Play?
Roth assets can be useful in retirement income planning because the original owner is generally not required to take lifetime RMDs from a Roth IRA. In addition, designated Roth accounts in employer plans are generally no longer subject to lifetime RMDs for the original owner. (irs.gov)
That does not mean a Roth conversion is automatically the right move. A conversion generally creates taxable income in the year it occurs, so the tradeoff should be reviewed carefully before taking action. (irs.gov)
The Bottom Line
RMDs are a normal part of retirement for many households with pre-tax retirement savings. While they generally cannot be skipped once required, there may be opportunities to plan ahead and better manage how they affect taxable income over time. (irs.gov)
Strategies such as reviewing withdrawal timing, evaluating Roth conversions, and considering qualified charitable distributions may be worth discussing in the right circumstances. Because tax laws and personal situations vary, these decisions are usually best considered within the context of a broader financial plan.
Disclosure: This material is provided for informational and educational purposes only and should not be construed as investment, tax, or legal advice. Investing involves risk, including possible loss of principal. Tax laws and rules are subject to change. Individuals should consult with their tax, legal, and financial professionals regarding their specific circumstances.